SRINIVASAN, J. - Of the two questions referred to us under section 66(2) of the Act, one has been withdrawn by the assessee and the surviving question is :
'Whether the levy of penalty of Rs. 11,000 on the assessee-family for 1953-54 under section 28(1) (a) of the Act was valid in la ?'
The facts are these :
For the year in question, the assessment on the assessee as a Hindu undivided family was completed under section 23(4) of the Act on January 12, 1954. The late karta of the family, Vriddachala Reddiar, failed to comply with the notice served upon him under section 22(2) of the Act. Two proceedings were simultaneously set on foot, one of which was an application under section 27 of the Act for cancelling the assessment. This application was dismissed by the Income-tax Officer on July 2, 1954. An appeal to the Appellate Assistant Commissioner was also dismissed on August 10, 1955. Simultaneously with these proceedings, an appeal in so far as the quantum of income determined on best of judgment as liable to be taxed was taken to the Appellate Assistant Commissioner. He made an order on August 10, 1955, reducing the computed income by Rs. 5,000. Appeals were taken to the Tribunal both from the decision of the Appellate Assistant Commissioner in the quantum-appeal and the dismissal of the application under section 27. A composite order was passed by the Tribunal. The Tribunal directed 'that the two cases in appeal be restored to the file of the Income-tax Officer, and they be disposed of in accordance with law.' This order was made on June 12, 1956.
The Income-tax Officer again dismissed the application under section 27 of the Act holding that the assessee had not shown sufficient cause for failure to comply with the notice under section 22(2). Simultaneously, however, he passed a fresh order of assessment under section 23(4) in which he gave effect to the reduction of the quantum by the Appellate Assistant Commissioner. Both of these matters, that is, the rejection of the application under section 27 and the final assessment made by the Income-tax Officer, came before the Tribunal in due course. The Tribunal rejected the appeal arising from the application under section 27 as well as the quantum-appeal.
Immediately on the making of the assessment under section 23(4) of the Act on January 12, 1954, the Income-tax Officer had issued a notice under section 28(3) of the Act. In the order made by him imposing the penalty, he noted that, in response to the notice under section 22(2) of the Act, the assessee had asked for time on three occasions and such time had been granted to him till December 31, 1953. Nevertheless, no return had been filed even by January 12, 1954, when the assessment was made under section 23(4) of the Act. The return was filed on January 24, 1954, after such assessment had been made. The assessees explanation that the failure to submit the return was due to his illness was not accepted. His plea that his illness prevented him from handing over the books of account to the auditor to enable the latter to prepare the return was also rejected. The Income-tax Officer purported to rely upon the letters written by the auditor and the assessees reply to the penalty notice and finally stated :
'All these go to show that the assessee was not able to file a return before the time taken by him for the reasons best known to him. If the accounts were regularly maintained and had it not been for the mala fide intention of the assessee, the return could have been filed even without asking for a single adjournment, since the account year for the bus transport ends long before the commencement of the assessment year. In these circumstances, I have no hesitation to hold that the assessee has without reasonable cause failed to comply with the terms of the notice under section 22(2) and that he rightly deserves a penalty under section 28(1) (a).'
Thereafter, he imposed a penalty of Rs. 11,000.
In the appeal to the Appellate Assistant Commissioner against this order, that authority observed that the assessees failure to show cause for non-compliance with the notice under section 22(2) was established and that therefore the levy of penalty was justified. In the further appeal to the Appellate Tribunal, the question of the jurisdiction of the levy of penalty was not independently considered, for the Tribunal had before it both the quantum-appeal as well as the penalty-appeal. In the quantum-appeal, the justification for making an assessment under section 23(4) was disputed, but the contentions in that regard were rejected by the Appellate Tribunal. This part of the appellate order of the Tribunal deals with proceedings under section 27 as well. The Tribunal finally stated in the penalty-appeal :
'Enough has been said to show that there has been default in complying with the notice under section 22(2). The only question is about the quantum, Rs. 11,000. Far from mitigation, the conduct of the assessee has only aggravated the default. We see no reason to interfere.'
The question that stands referred to us canvasses the conclusion so reached by the Tribunal.
It is undoubtedly proved that the assessee failed to furnish the return in response to the notice under section 22(2) of the Act. His failure to submit the return obviously confers jurisdiction upon the Income-tax Officer to make assessment to the best of his judgment. Having regard to the earlier proceedings that were before the Tribunal when it remitted the original quantum appeal as well as the application under section 27 of the Act, one could assume that the Tribunal at that time did really feel that the assessee had established sufficient cause for the failure to make the return. It did not say so specifically; but if, at that stage, the Tribunal felt that there was no sufficient cause, it was hardly necessary to remand the matter back to the Income-tax Officer. At the subsequent stages of the hearing of the quantum and penalty appeals, the composition of the Tribunal had altered, and the Tribunal at the later stages had only to go by the record and it assumed that the Income-tax Officer was directed to reconsider the application under section 27. A slight amount of confusion was created by this feature. That however has to be ignored at the present stage. But what we wish to emphasise is that the imposition of the penalty in the present case appears to have proceeded more for the reason that the application of the assessee under section 27 had been dismissed than for any specific finding relevant to section 28(1) (a).
In an application under section 27 of the Act, an assessee is required to satisfy the Income-tax Officer that he was prevented by sufficient cause from making the return or from complying with the terms of the relevant notice. When we come to section 28, however, the Income-tax Officer has to be satisfied that any person has without reasonable cause failed to furnish the return. While in the one case, the requirement is only a sufficient cause to enable the cancellation of the assessment, to justify the imposition of the penalty, the absence of reasonable cause has to be established. Again, in an application under section 27 of the Act, it seems to us that the onus is upon the assessee to establish sufficient cause, while under section 28, before a penalty could be imposed, it is for the department to show that the assessee who failed to submit the return did so without reasonable cause. The extracts from the order of the Income-tax Officer and the Appellate Tribunal in so far as the imposition of the penalty is concerned clearly establish that both of these authorities relied only upon the failure by the assessee to show cause in the proceeding under section 27 in supporting their conclusions justifying imposition of the penalty under section 28. It is noteworthy that, in the present case, the return was filed on January 24, 1954, even before the order of assessment under section 23(4) was served upon the assessee. It is not a case where, after becoming aware of the making of the order of assessment to the best of judgment, that the assessee filed the return. Before the authorities below, evidence was produced to show that the assessee was suffering from heart disease and in his capacity as permanent headman of the village had also been granted leave on a previous occasion on account of illness. In his reply to the notice, he pointed out that it was on account of his illness that he was unable to hand over the books to the auditor, a fact which was really supported by the auditor. These facts have not really been taken into account by the departmental authorities. More particularly, the Tribunal has ignored the difference in the language employed in sections 27 and 28 of the Act in this regard, and has virtually relied upon his failure to show sufficient cause, which led to the dismissal of the application under section 27, as establishing also the absence of a reasonable cause under section 28. While the Income-tax Officer was satisfied that there was sufficient cause for failure to make the return, the grounds shown by the assessee may well amount to reasonable cause within the meaning of section 28.
Apart from these considerations, the Income-tax Officer appears to have taken matters which are wholly extraneous to the consideration of the question under section 28. Whether the assessee maintained accounts regularly or not is wholly irrelevant, and the Income-tax Officers reference to some mala fide intention of the assessee seems to us to be entirely out of place. Nor are we able to appreciate the observation of the Tribunal that the conduct of the assessee had aggravated the default. How the subsequent conduct of the assessee can aggravate the offence which was principally one of failure to submit the return in compliance with section 22(2) we are unable to see. If by this observation the Tribunal meant that the assessees subsequent explanation for the default did not appear to be true and for that reason proceeded to hold that there was aggravation of the default, that approach to the question is wholly erroneous.
It seems to us that, in these circumstances, there has been no consideration of the question in the light of the requirements of section 28(1) (a) of the Act, the order imposing the penalty cannot be therefore justified in law. We accordingly answer the question in favour of the assessee. In the circumstances of the case, however, we make no order as to costs.
Question answered in favour of the assessee.